Data obtained through a freedom of information request shows that 14,030 gifts became liable for inheritance tax in 2022 to 2023 because the person who made the gift died within seven years, meaning the asset was counted back into their estate.
Some wealthy families faced bills of more than three million pounds after “gifts gone wrong.” These cases involved relatives handing over valuable cash or assets shortly before death, leading to tax charges at the highest rate.
Inheritance tax is charged at 40 per cent on estates above the standard tax free allowance of 325,000 pounds. This threshold rises to 500,000 pounds when a main home is passed to a direct descendant and the estate is valued below two million pounds.
Many people attempt to reduce potential tax liabilities by gifting assets before death. To be fully exempt from inheritance tax, the donor must live for seven years after the gift is made. If the donor dies within three years, the full 40 per cent rate applies. Gifts made between three and seven years before death are taxed on a tapered scale of eight to 32 per cent, and only when the total gifts exceed the 325,000 pound allowance.
The freedom of information data shows the 25 largest failed gifts were worth an average of 7.9 million pounds after allowances. A gift of this size made within three years of death carries a potential tax bill of around 3.1 million pounds. The overall average failed gift was 171,000 pounds, attracting tax of 68,400 pounds if the donor died within three years.
Michelle Holgate of RBC Brewin Dolphin, the investment firm that submitted the request, said gifting strategies were no longer used only by the very wealthy. She noted growing interest from farming families seeking to pass assets such as land to the next generation without triggering a significant tax charge.
Holgate added that families want to preserve the legacy of agricultural businesses which have been built over several generations.
More households are being drawn into paying inheritance tax after changes announced by the chancellor. In last year’s budget, Rachel Reeves confirmed that private pension pots will be liable for inheritance tax from April 2027. She also reformed agricultural and business property reliefs which had previously allowed many farmers and small business owners to pass on assets tax free. From April 2026 these reliefs will apply only to the first one million pounds of combined agricultural and business property. Any value above this limit will qualify for 50 per cent relief, creating an effective inheritance tax rate of 20 per cent.
The Office for Budget Responsibility forecasts that inheritance tax revenue will almost double within five years to reach 14.3 billion pounds.
